Main US indexes red; Dow off most, down ~0.9%
Staples weakest S&P 500 sector; Energy sole gainer
Euro STOXX 600 index off ~0.8%
Dollar rises; US crude up >3%; gold down >2%; bitcoin down >4%
US 10-Year Treasury yield rises to ~4.23%
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MIDEAST OIL SHOCK COULD CHARGE UP APAC ALTERNATIVE ENERGY PLAYS, SAYS JPM
While disrupted shipping through the Strait of Hormuz and attacks on energy infrastructure amid the ongoing Middle East conflict have pushed oil prices to the point of pain, J.P.Morgan is counting it a silver lining for alternative energy sources.
For import-heavy regions like the Asia-Pacific, a transition to alternative sources of energy could help with energy security as it reduces reliance on imported fossil fuels. JPM picks energy storage systems $(ESS)$ and transformers or High Voltage Direct Current (HVDC) as the most "actionable opportunity".
ESS and residential solar manufacturers benefited the most back in 2022, when Russia's invasion of Ukraine disrupted energy shipping in a deja vu moment, thanks to their shorter deployment timelines and acute grid bottlenecks, JPM notes.
The brokerage names LGES 373220.KS, Nari 600406.SS and Sungrow 300274.SZ among its top picks in the sector.
It says transformers and HVDC equipment makers can also benefit from the billions pouring into U.S. grid expenditure and potential increased investment to solve power bottlenecks that could strengthen pricing power.
Asian utilities are boosting coal-fired power generation to cut costs and safeguard energy supply, while South Korea is also raising nuclear power plant utilisation to as high as 80% to grapple with the oil spike.
Consultancy Wood Mackenzie said coal fleets could offset up to 70% of Japan's and over 100% of South Korea's gas-fired generation based on 2025 levels, but the flexibility could decline heading into peak summer months. It estimates an addition of 4.6 gigawatts of baseload capacity from Japan's five nuclear reactor restarts since 2022.
However, JPM is willing to revise the rating higher for the sector only if the market was willing to pay a premium for these stable assets.
Wall Street's tech giants turning to small modular reactors (SMRs) to service their golden goose data centers is also raising the demand for clean energy, from which Korea's equipment providers - cost-competitive, robust project delivery - stand to benefit, said JPM.
However, JPM warns that any signs of AI data center capex slowing may lead to an outflow of funds from the sector and prompt a lower valuation, but even then, the risks would be manageable.
(Purvi Agarwal)
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